Books on Ukraine
Update No: 297 - (29/09/05)
President is under travails
President Viktor Yushchenko became a world figure last year during Ukraine's
democratic revolution. Now many difficulties are besetting him.
Yushchenko recently referred poignantly and personally to the country's current
state, citing the poisoning that disfigured his face on the eve of last year's
election, a crime that has yet to be solved.
"A year ago I ran for president not to see key state institutions
struggling to find understanding and failing to find accord and mutual
trust," he said. "That is not what I sought as I have been walking for
a year with a face that is not mine."
But he assured Ukrainians that he would keep up the pace of democratic and
market reforms and dismissed an election challenge next year from his
charismatic former prime minister. Yushchenko said he wanted "a pragmatic
government" and called on Yuri Yekhanurov, his nominee as new prime
minister, and Parliament to agree on a stability pact to end political turmoil
before a key parliamentary election next March.
The dismissal of Tymoshenko
Yushchenko accused Yulia Tymoshenko, the prime minister he dismissed recently,
of having acted in favour of certain business groups in a dispute over a metals
plant. Yushchenko strongly criticised Tymoshenko's government for its handling
recently of the renationalisation of Nikopol Ferroalloy Plant. "High
officials started directing events in favour of corporate interests; then crises
appeared," Yushchenko told journalists recently. "It was the last
straw. I decided firmly that the decision most of all should be the following:
Everybody should get lost."
The dispute over Nikopol has its roots in the lofty ideals of last year's Orange
Revolution, in which Mr Yushchenko and Yulia Tymoshenko, the firebrand orator he
appointed as his prime minister pledged to root out the corruption that had so
tarnished Ukraine since its 1991 independence from Soviet domination. A central
pledge was to review the murky privatisations of state assets carried out under
then-President Leonid Kuchma.
But in the end, Yushchenko's government was perceived as just as cronyistic as
its predecessor. Oleh Rybachuk, Yushchenko's new chief of staff, appeared to
acknowledge that recently when he said members of the new cabinet would have no
business interests that might influence decision-making.
A country the size of France with a population of 47 million, Ukraine has been a
key part of US President George W Bush's democracy-building agenda since last
year's street protests. In a phone call to the White House, Yushchenko assured
Mr Bush that Ukraine would stick to its revamped, pro-Western course despite the
The challenge of Tymoshenko
His dismissal of Tymoshenko, an electrifying speaker who brought tens of
thousands onto the streets in his support in December's "Orange
Revolution," turns her into a dangerous political rival. Tymoshenko
declared recently she and her bloc would complete against the Yushchenko camp in
the March election.
Ms Tymoshenko declared on national television recently that she now is in
opposition to Mr Yushchenko, marking the breakup of an alliance that had been
the driving force of last year's revolution. She called her dismissal
"unfair", accused the president's inner circle of conspiring to topple
her and said she would campaign in March's parliamentary elections as head of a
separate political force.
At the same time, her replacement, acting Prime Minister Yuriy Yekhanurov, said
his policies would be more moderate - in particular, the approach to
reprivatisation. The full story of hers is what she promises to reveal on the
It is not difficult to anticipate what sort of things she will say. The
charismatic Ms Tymoshenko's anticorruption drive got off to an inauspicious
start. Shortly after being sworn in as prime minister in February, she said the
government would review about 3,000 privatisations. Scrambling to calm horrified
investors, Mr Yushchenko quickly contradicted her, saying the review would be
limited to a dozen companies.
From the beginning, it was clear her policy on the issue would earn Tymoshenko
powerful enemies. One of the first targets was Krivoryzhstal, Ukraine's biggest
steel mill, which was sold last year to Viktor Pinchuk, Mr Kuchma's son-in-law,
and Rinat Akhmetov, one of Ukraine's richest businessmen, for US$800m (645m
Euro) - much lower than other bids. The new government swiftly nationalised the
mill and will resell it in October, with bid expected to exceed US$2bn. But some
said the policy was more of a witch-hunt against members of the Kuchma clan than
a quest to restore economic justice. Those claims grew louder after Tymoshenko
moved against the Nikopol plant, another Pinchuk asset.
Recently, Ukraine's Higher Economic Court ruled that the Kuchma government had
acted illegally in 2003 when it sold Mr Pinchuk just over 50% of shares in the
plant for about US$80m. Mr Tymoshenko said the stake would be re-auctioned for
not less than US$400m. But the takeover of Nikopol was badly bungled, as we have
seen, leading to accusations that Ms Tymoshenko had merely handed it to a fresh
set of oligarchs.
"In any competitive battle between different business groups, the
government should act as a neutral referee," Mr Pinchuk said in an
interview. "But here it was itself a player."
The oligarchs in question were from Privat, a powerful business group which
Ukrainian press reports say is backed by Ms Tymoshenko - a claim she has denied.
Recently, an extraordinary shareholders meeting of questionable legality swept
aside the Nikopol management and elected a new board. The new bosses, who have
links to Privat, tried to enter the plant on September 1st, backed by police and
soldiers. But they were blocked by hundreds of workers, supported by a
recalcitrant Mr Pinchuk.
Mr Yushchenko denounced the government's handling of the affair and gave
authorities 3 days to return Nikopol's shares to state ownership. In a similar
conflict, workers at a chemical-fertiliser plant in Severodonetsk demonstrated
on September 4th against government plans to assume control of the factory and
reprivatise it. The Western company that owns a chunk of the plant, Worldwide
Chemical LLC, says it has abided by the original terms of the sale and says the
government should wait until a Supreme Court ruling on the dispute before trying
to take it over.
The Nikopol scandal opened a debilitating split between Ms Tymoshenko and Petro
Poroshenko, a confectionary and media tycoon who was one of Mr Yushchenko's
biggest financial backers during the Orange Revolution and later became head of
Ukraine's Security Council. Mr Yushchenko accepted Mr Poroshenko's resignation
recently after he was accused of corruption.
Jitters about nationalisation already had begun to put a brake on Ukraine's
economy. Growth slumped to a 5-year low of 4% in the first half of the year,
compared with a record 12.1% last year.
Revealingly the International Monetary Fund (IMF) recently said investment in
Ukraine would rebound only after a "speedy resolution of uncertainty about
the government's reprivatisation plans."
Iran, Ukraine to expand agricultural relations
On August 22nd Iran's Ambassador and the country's Minister of Agrarian Policy,
Alexander Baranovskiy, discussed various ways of expanding mutual relations in
the domain of agriculture, New Europe reported.
Baranovskiy said, "Given the variety of agricultural production in Ukraine,
in particular corn, we are interested in cooperating with Iran in the field of
export of such products." The Iranian diplomat welcomed expansion of
collaboration in the field and hoped that the Ukrainian partner would present
high-quality products at competitive prices. Expressing his approval, the
minister called for another meeting in Kiev to be attended.
Moody's notes Ukraine's growing banking sector
Moody's Investors Service in a new banking system outlook on Ukraine announced
that Ukraine's rated banks reflect the growing importance of the country's
banking sector with benign economic conditions that are driving the growth in
financial intermediation, New Europe reported.
However, the average E+ financial strength rating (FSR) remains constrained by
the country's still volatile operating environment in an undiversified economy,
the complex political situation, poor corporate governance and the weaknesses in
financial fundamentals plaguing most of the financial institutions.
At the same time, given that the local currency ratings of some of the largest
Ukrainian banks significantly exceed the country's foreign currency deposit
ceiling, some of the banks' foreign currency deposit ratings, currently all at
the B2 level, might be raised if the ceiling were to be upgraded in the future.
Moody's analyst and author of the new report, Dmitry Polyakov, said, "The
degree of banking system penetration has been steadily growing over the past few
years, as reflected in a significant deposit and credit expansion. However,
compared to other Central and Eastern European (CEE) countries, Ukraine's
banking system still plays a very limited role in the national economy, with
banking assets representing only 39 per cent of GDP." The system continues
to be fragmented, with about 160 registered banks, while a significant
proportion of assets are concentrated in the top 10 banks.
According to the analyst, despite improving macroeconomic fundamentals,
profitability remains low due to operational inefficiencies and high
provisioning expenses. In the final two months of 2004, Ukraine experienced a
political crisis during the presidential elections, which severely undermined
consumer confidence, causing a liquidity drain from the banks. To prevent bank
failures, the National Bank of Ukraine (NBU) made a timely intervention,
introducing withdrawal and lending restrictions as well as granting
stabilisation loans totalling one billion hryvnias.
The political turmoil subsided after the second round of the elections, when the
opposition candidate, Victor Yushchenko, was elected president. Moody's said
that by mid-January 2005, all the restrictions had been lifted and consumer
confidence revived, leading to a net inflow of customer deposits.
Liquidity recovered, allowing the banks to repay their stabilisation loans
before their due dates. Such events have demonstrated the volatility inherent in
Ukraine's operating environment and the fragility of the banking system, which
is captured by the system's average ratings of B2/E+. The net core liquidity in
the system is somewhat tight, although most Ukrainian banks comfortably comply
with NBU's liquidity requirements.
The central bank's willingness to act as a lender of last resort in any
situation akin to last year's crisis somewhat allays the rating agency's
concerns over the liquidity profiles of most of the banks. "A positive
factor that is in part responsible for a smaller gap between state-owned banks'
ratings and those of the strongest private banks in Ukraine is the lack of
domination by state-owned banks, which creates a more level playing field,
particularly when compared to the Russian banking system," Polyakov said.
Kiev, Moscow to discuss direct use of Odessa-Brody
Russia and Ukraine are to discuss the possibility of using the Odessa-Brody oil
pipeline as originally planned, the press service of the Russian Industry and
Energy Ministry said after a meeting between representatives from both countries
on August 22nd, New Europe reported.
"Representatives from the Ukrainian delegation proposed that they discuss
the possibility of using the Odessa-Brody directly, and not in reverse. It was
decided to set up a working group containing representatives from companies and
state bodies in both countries. The Russian delegation will be headed by Federal
Energy Agency Director, Sergei Oganesyan," the statement said.
Speaking at the meeting about the reverse use of the pipeline, a TNK-BP
representative said that the interest of Russian companies in transporting oil
via this route needs to be stimulated by tariff policy.
7-mo electricity exports rise
Ukraine boosted electricity exports 110% year-on-year to 5.801bn kilowatt-hours
(kWh) in January-July 2005, the Ukrainian Fuel and Energy Ministry said in a
statement recently, cited by Interfax News Agency.
The growth in electricity exports is attributable to increased exports to Russia
in the period from December 1st, 2004 to July 1st, 2005. Electricity exports
were down 5.4% to 388.1m kWh in July 2005 compared to July 2004. The drop in
exports is due to the suspension of electricity exports to Russia "in
connection with the determination of a fair price on exported electricity,"
the statement said. The Ukrainian national nuclear energy company Energoatom
suspended electricity exports to Russia on July 1st after the National
Electricity Regulatory Commission decided to almost double the price at which
Energoatom buys electricity on the wholesale market for export to Russia from
0.0691 hryvnias to 0.122 hryvnias (US$0.0242) per kWh. Energoatom earlier sold
electricity to Russia's INTER RAO UES at about US$0.014 per kWh.
New refinery plan due in November
The Ukrainian cabinet has instructed the fuel and energy ministry to draw up a
business plan for the construction of a new refinery and submit it to the
government in November 2005, according to Interfax News Agency.
The ministry must also draft a business plan for construction of the Brody-Plotsk
section of the oil pipeline, which will be connected to the Odessa-Brody
pipeline, and submit this by December 2005. Ukraine aims to use the Odessa-Brody
as efficiently as possible and utilise its capacity to a maximum, the government
said in a resolution. Ukrainian President, Viktor Yushchenko, on August 5th
ordered the start of preparations for a new refinery with annual capacity of at
least 8m tonnes and refining depth of at least 95%. He asked the cabinet to
ensure that a tender be held to select an investor for the new refinery. The
refinery is to be built near the Yuzhny port in Odessa region. A consortium of 3
companies - SWECO PIC (Finland), ILF GmbH (Germany) and KANTOR (Greece) will put
together a feasibility study for extending the Odessa-Brody pipeline to Plotsk
in Poland. The consortium won a tender to provide consultation support for
technical, economic, financial and legal issues in developing the Odessa-Brody-Plotsk
oil transport system.
Ukraine to develop Azeri oil and gas fields
Ukraine is going to take part in the development of oil and gas fields in
Azerbaijan, Interfax News Agency quoted Azeri state oil company SOCAR as saying.
"While meeting on August 23rd national JSC Naftogaz Ukrainy's delegates and
SOCAR's heads discussed the possibility of the Ukrainian company's involvement
in the development of both old fields of SOCAR and new promising
structures," said a spokesman for SOCAR.
Naftogaz experts are expected to visit Baku to finalise the issue and find out
details, the source said. In addition, Naftogaz's delegates and the government
of Azerbaijan discussed the supply of oil products to Ukraine and Azerbaijan's
possible participation in oil shipments through the Odessa-Brody oil pipeline.
Ukraine approves US$100m Deutsche Bank road loan
Ukraine's government approved a 10-year US$100m road loan from Germany's
Deutsche Bank, according to a recent report from the Dragon Capital investment
house, New Europe reported recently.
The low-interest credit will go towards the completion of a modern
"autobahn"-style highway connecting the Ukrainian capital Kiev and
Black Sea port city Odessa.
The money is a follow-on of a US$480m Deutsche Bank loan advanced one year ago
for the same project. The decision to accept the German credit came after
extensive reports in the Ukrainian media of shoddy work, and probable graft, on
the highway so far. The 420-km stretch of road will cost almost twice prevailing
rates for modern highway construction in countries like Germany and the US,
despite the use of cheap Ukrainian labour and construction materials, the
Ukrainska Pravda magazine reported recently.
Ukraine Transport Minister Evhen Chervonenko was cited in the Ukrainska Pravda
report as saying the highway could not be completed "unless we find some
Deutsche Bank is one of the most active foreign players in Ukraine's financial
Kiev has named the German firm as co-manager for a Ukrainian Eurobond release
worth some US$720m planned later this year. Ukraine's foreign debt as of July's
end was equivalent to US$11.4bn, according to ministry of finance data.